Finding the right mortgage can be a difficult and confusing process. The first step in making mortgage selection easier, is to consider all the different types of mortgages. Mortgages generally fall in to two separate categories, conventional and government loans, but, within those categories things get complicated.
Conventional mortgage loans are an all inclusive group of mortgages with the exception of FHA, VA and RHS loans. But, within the conventional loan realm, there are various sub genres of loan. Fixed rate, adjustable rate, and combination rate loans all fall under the heading of conventional.
Fixed rate loans are loans that maintain the same interest rate for the duration of the loan terms. If a contract is signed for a fixed rate mortgage loan with an interest rate of 6.25% in 2007 and the rate climbs to 8.25% in 2010, the rate will never move. It is a fixed rate. Fixed rate loans may be higher than adjustable rate loan in the beginning, but once the adjustable loan begins to fluctuate, the fixed rate will, most often, be the better deal.
Adjustable rate loans do not maintain the initial interest rate for the duration of the loan. The rate, while lower in the beginning of the loan than the fixed rate alternative, will fluctuate with the interest rate market after the first three to five years. With this interest fluctuation, comes a mortgage payment fluctuation. Many people choose an adjustable rate loan if they plan on selling the home before the rate begins to adjust, or anticipate higher earnings within the first five years of the loan.
Government loans include the FHA, VA and RHS loans. These loans often have a totally different set of rules and qualifications than conventional loans.
The Federal Housing Administration or FHA loan, is governed by the United States Department of Housing and Urban Development. The FHA loan is generally easier to qualify for than a conventional loan and carries a lower down payment requirement. Anyone can apply for an FHA loan.
A VA loan, on the other hand, is geared toward veterans and service personnel. Run by the United States Department of Veterans Affairs, the VA loan program is also easier to qualify for than a conventional loan and require no down payment in most cases.
The RHS loan program is solely for people who live in a rural environment. The United States Department of Agriculture is the governing body and they offer no down payment and minimal closing costs.
Mortgages are truly complicated pieces of paperwork. With so many options available to home buyers, it is sometimes easier to read a little about the different loan offerings before deciding which loan is best.
(Article originally published by RS Banks on Suite101.com)